U.S. Healthcare Spending Hits $3 Trillion Mark

After five years of historic low growth that averaged about 3.7% per year, spending growth accelerated to 5.3% in 2014, largely in part to the addition of 8.7 million people to government and private health insurance rolls under the Patient Protection and Affordable Care Act.

Healthcare spending in the United States crossed the $3 trillion threshold in 2014 and now represents 17.5% of the nation's gross domestic product, the Centers for Medicare & Medicaid Services said Wednesday.

A further breakdown by CMS's Office of the Actuary shows that after five years of historic low growth that averaged about 3.7% per year, spending growth accelerated to 5.3% in 2014, largely in part to the addition of 8.7 million people to government and private health insurance rolls under the Patient Protection and Affordable Care Act. 

Spending on healthcare breaks down to $9,523 per person, according to the study, which was published in Health Affairs.

"Some of the primary drivers of the growth include acceleration in private health insurance and Medicaid expenditures due to the expansion of health insurance coverage under the Affordable Care Act," Anne B. Martin, an economist in the Office of the Actuary at CMS and lead author of the Health Affairs article, said in conference call with media.

The expansion added 8.7 million people to the insurance rolls, and lifted the share of the insured population from 86% in 2013 to 88.8% in 2014, the highest share since 1987.

Martin says another factor was the "rapid growth in prescription drug expenditures, fueled in part by the introduction of new specialty drugs, particularly those used to treat Hepatitis C. Overall, spending on prescription drugs grew by 12.2% in 2014, compared to 2.4% growth in 2013.

On a per-enrollee basis, overall spending increased 3.2% in private health insurance, 2.4% for Medicare and decreased 2% in Medicaid.

Despite the accelerated growth, CMS said consumer out-of-pocket spending grew by 1.3% in 2014 compared to 2.4% in 2013. Overall, healthcare spending grew 1.2 percentage points faster than the overall economy in 2014, resulting in a 0.2 percentage-point increase in the health spending share of gross domestic product – from 17.3% to 17.5%. From 2000 to 2009, before the PPACA, healthcare spending grew by an average of 6.9% annually, 2.8 percentage points faster than GDP.

The report showed that:

• Total private health insurance expenditures (33% of total health care spending) reached $991.0 billion in 2014, and increased 4.4%, faster than the 1.6% growth in 2013 (the slowest rate since 1967). The faster rate of growth reflected the impacts of expanding coverage through Marketplace plans, health insurance premium tax credits, new industry fees, and changes to benefit designs. Per-enrollee spending increased by 3.2% in 2014. Average growth in per-enrollee spending was 7.4% from 2000-2009.
• Medicare spending, which represented 20% of national health spending in 2014, grew 5.5% to $618.7 billion, a faster increase than the 3% growth in 2013. The 2014 rate of growth was driven by increased spending growth for retail prescription drugs and in Medicare Advantage. Per-enrollee spending increased by 2.4%. Average growth in per-enrollee spending was 7% between 2000 and 2009.
• Medicaid spending accounted for 16% of total spending on health and grew 11% in 2014 to $495.8 billion, a faster increase than the 5.9% growth in 2013. Medicaid growth in 2014 was driven by coverage expansion under the Affordable Care Act, as 26 states plus the District of Columbia provided coverage for individuals with incomes of up to 138% of the federal poverty level. An estimated 6.3 million newly eligible enrollees were added to Medicaid in 2014. Per-enrollee spending decreased by 2%.
• Out-of-pocket spending (which includes direct consumer payments such as copayments, deductibles, and spending not covered by insurance, excluding premiums) grew 1.3% in 2014 to $329.8 billion, slower than annual growth of 2.1% in 2013. The slowdown in 2014 was influenced by the expansion of insurance coverage and the corresponding drop in the number of individuals without insurance.
• Retail prescription drug spending accelerated in 2014, growing 12.2% to $297.7 billion, compared to 2.4% growth in 2013. Rapid growth in 2014 was due to increased spending for new medicines (particularly for specialty drugs such as those used to treat hepatitis C), a smaller impact from patent expirations, and price increases for brand-name drugs. Private health insurance, Medicare, and Medicaid spending growth for prescription drugs all accelerated in 2014.